REPORT: The Business Of Sports
Playing And Paying
By Steve Greenberg

Today it can be said that the revenues of sports are no longer solely dependent on fans purchasing tickets, hot dogs, and beer at sporting events.

Revenue generation of teams, leagues, and organizations has become the development of complex strategic plans to enable the entity to maximize opportunities. The relative playing strength of a franchise depends today on the financial strength of the team and ownership.

First, an examination of the professional leagues shows the impact structure has on the potential success of each franchise. Leadership is an important factor in the interplay of a league and team franchises. David Stern, commissioner of the NBA, took a league plagued by drugs, declining TV revenue, and weak franchises and quickly turned it around. He did this by emphasizing league interests and prioritized league services in the areas of marketing, promotion, broadcasting and advertising. The league expanded not only nationally by adding franchises, but globally by recruiting and promoting foreign players. The result was the promotion of the NBA as a whole - not individual franchises. This has given the league the opportunity to target markets by creating levels of pricing for tickets, significantly increased broadcast revenues and soaring values for signage and league and team partnerships.

The well-oiled machine known as the NFL is considered by most to be the most successful of all leagues. The NFL, which has the most aggressive revenue sharing system and most lucrative broadcast contracts, clearly is the most financially stable model. Opportunistic owners, however, have recently exposed flaws in the league's system.

In the NFL, the two target revenue categories - broadcast revenue and gate receipts - are split equally giving franchises in small markets the ability to compete with teams in major markets.

The underlying problem with today's NFL system is that aggressive owners in markets like Dallas believe they can make more money marketing their franchise (local revenues) than their split of the revenue sharing of the league.

With more new stadiums in place, teams have the opportunity to generate more local revenues which are not shared. The potential outcome is damaging to the "competitive balance" the league has been known for since the early 1960's. It will take strong leadership by prudent owners, and most importantly the commissioner, to maintain the revenue sharing system which generates the largest revenues of any league and the most competitive balance.

Despite impressive increased revenue generation over recent years, Major League Baseball still endures under an antiquated level of revenue disparity between franchises.

Even with increased revenue sharing, the gap between the haves and have-nots in baseball remains. The grim fact exists that the numbers of frustrated fans in low revenue markets continues to grow. In places like Pittsburgh, Kansas City, Tampa or Cincinnati, a .500 season would be an incredible accomplishment. Revenue from the three sources: 1: local revenues (tickets, local broadcast, cable, concessions, parking); 2: central funds (industry wide contracts, licensing); 3: revenue sharing (distribution of funds from high revenue clubs to low revenue clubs) will continue to grow as new ball parks continue to open and additional amenities are added to the game.

However, increased revenue from all sources will not solve the economic woes of baseball. Local revenues usually make up the majority of a team's percentage of revenues during any one season. Unfortunately for smaller market teams, their revenues are not shared; and in some cases, local revenues of some teams exceed total revenues of others. Therefore, unlike the NFL, an incredible disparity remains.

A solution could be similar to that of the NFL and the NBA. Strong leadership from the commissioner, league offices and prudent owners is needed to convince their brethren that there is a direct correlation between the strength of each individual franchise and that of the league. A strong MLB brand, by emphasizing the league over individual teams, will create an MLB which significantly increases the competitive balance of its individual teams. The opportunity for all teams to play on an even playing table would provide the stability and revenue growth potential to take the league and its interest of fans, sponsors, and advertisers to a new level.

Baseball's recent track record, however, has shown the inability of individuals in positions of leadership and power to implement the potential solutions.

Revenue generation in sports today is all about strategic planning, industry market segmentation, target marketing, creativity change, customer service, and common sense. Marketers must understand the 5 P's of marketing - place, price, promotion, public relations, and products. Ticket revenue, concession, broadcast revenues, merchandising, parking, naming rights, signage, and premium seats revenue in addition to new concepts like internet opportunities, virtual signage, etc. will enable clubs to take revenue levels to new heights.

Remember, fans need "hope" to sustain emotion for their favorite teams; and most importantly, even with increased sophistication in sports marketing and an outstanding array of individuals involved in the sport, one premise will always hold true: "Winning is the Number 1 Marketing Tool."

Steve Greenberg is an associate program director for the Master of Science in Sports Leadership program at Duquesne University.